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AWK Lags 4Q Ests, Guides Favorably

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American Water Works Company Inc. (AWK - Free Report) reported fourth quarter earnings per share of 30 cents, lagging the Zacks Consensus Estimate of 35 cents by 14.3% and the year-ago earnings of 34 cents by 11.8%.

The year-over-year decline in earnings was due to a $7 million contribution made to the American Water Charitable Foundation, increase in maintenance costs, expenses related to Hurricane Sandy and the company’s SAP implementation.

GAAP earnings for the quarter were 31 cents per share versus 37 cents in the prior-year quarter. The difference between operating and GAAP numbers was due to a gain of 1 cent from discontinued operations.

In 2012, American Water Works posted earnings of $2.11 per share, 21.9% higher than the 2011 level of $1.73.

The yearly results benefited from a warm, dry summer, which drove demand.

Total Revenue

Fourth quarter revenues of $680.9 million were up 6.4% year over year from $639.7 million, but missed the Zacks Consensus Estimate of $701.0 million.  The year-over-year outperformance was backed by favorable weather conditions and rate authorizations awarded in recognition of the company’s infrastructure investments.

Full-year 2012 revenues came in at $2.87 billion, surpassing the year-ago figure of $2.67 billion by 7.5%.

Highlights of the Release

Total operating expenses in the reported quarter increased 11% to $513.9 million, with operating and maintenance expenses increasing 10.5% year over year.

The rise in expenses led to a 5.8% decline in operating income of $166.9 million.

The company has consistently paid dividends to its shareholders. On Dec 6, 2012, the board of directors declared a quarterly dividend of 25 cents per share and made an accelerated payment on Dec 28, 2012, to allow shareholders to take advantage of the 2012 tax rates.

American Water Works’ planned capital investment in 2012 was $929 million, $4 million higher than 2011 levels.   

Interest expenses decreased 0.5% in 2012 to $310.8 million mainly due to a decline in debt.


American Water Works expects its 2013 earnings per share to better 2012 levels. The guidance ranges from $2.15 to $2.25 per share.

Other Company Release

American States Water Company (AWR - Free Report) reported earnings of 37 cents per share in the fourth quarter of 2012, lagging the Zacks Consensus Estimate of 53 cents.

Aqua America, Inc. (WTR - Free Report) announced fourth-quarter 2012 operating earnings of 47 cents per share, 95.8% above the Zacks Consensus Estimate of 24 cents.

California Water Service Group (CWT - Free Report) announced fourth-quarter 2012 operating earnings of 12 cents per share, 33.3% above the Zacks Consensus Estimate of 9 cents.

Our View

The warm and dry weather that prevailed during the year benefited this water utility. We believe American Water Works’ consistent investment to improve and maintain its underground infrastructure will allow the company to serve its customers better and enhance the reliability of service.

Voorhees, New Jersey-based American Water Works Company was founded in 1886. This water and wastewater utility caters to approximately 15 million residents across the country and parts of Canada. The company’s market capitalization is $6.98 billion. American Water Works Company currently has a Zacks Rank #3 (Hold).

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